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On the compensator in the Doob-Meyer decomposition of the Snell envelope

Jacka, Saul D. and Norgilas, Dominykas
(2019)
On the compensator in the Doob-Meyer decomposition of the Snell envelope.
SIAM Journal on Control and Optimization, 57
(3).
pp. 1869-1889.
doi:10.1137/18M1180931

Abstract

Let $G$ be a semimartingale, and $S$ its Snell envelope. Under the assumption that $G\in\mathcal{H}^1$, we show that the finite-variation part of $S$ is absolutely continuous with respect to the decreasing part of the finite-variation part of $G$. In the Markovian setting, this enables us to identify sufficient conditions for the value function of the optimal stopping problem to belong to the domain of the extended (martingale) generator of the underlying Markov process. We then show that the \textit{dual} of the optimal stopping problem is a stochastic control problem for a controlled Markov process, and the optimal control is characterised by a function belonging to the domain of the martingale generator. Finally, we give an application to the smooth pasting condition.